Michael David Moves into North Coast via Acquisition

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FILED APRIL 27, 2017

Silver Oak Cellars has sold its Geyserville property to Lodi-based Michael David Winery, owner of 7 Deadly Sins, Freakshow and Petite Petit. The acquisition, which includes the winery, tasting room and vineyards, marks Michael David's first entrance into the North Coast wine region.

The acquisition includes 12 acres of cabernet sauvignon vineyards in Sonoma's Alexander Valley AVA, which will be tended by Munselle Vineyards, while Michael David's director of winemaking Adam Mettler, will oversee operations and management for the facility.

"Even though our roots are in Lodi, quality fruit from the North Coast region has always played an important role as blending components to our wines," says Kevin Phillips, vp of operations at Michael David. "Having the ability to make these North Coast lots from harvest to glass adds another level of control and quality assurance to our finished wines."

Meanwhile, Silver Oak is moving to its newly constructed Alexander Valley production facility in June, per its website. The new Alexander Valley winery has 70 acres of cabernet sauvignon vineyards, a winemaking facility and a tasting room.

You may recall, Silver Oak also recently announced the acquisition of cult brand Ovid Napa Valley for $50 million [see WSD 04-21-2017]. Ovid sells about 2,000 cases of $300 bottles of wine.

"NO CEILING" FOR CRAFT SPIRITS MARKET SHARE

Clocking in at over 1,000 operating distilleries in the US, the craft spirits category has grown to represent about 2% of spirits market share. Unsurprisingly, the predictions for the category's growth trajectory are plentiful and vary widely. Research economist and founder of Coppersea Distillery Michael Kinstlick estimates the number of craft distilleries could hit 2,000 by 2022.

WHISKEY IS KING, and more than 75% of craft distilleries make whiskey. But Michael noted in 2016 the number of craft distilleries producing whiskey was "significantly lower." He attributed that to the entrants gap, meaning there are still distillers laying down barrels of whiskey but are waiting to declare themselves once they hit the market. As a result, we can expect that number to jump back up in the next 2-3 years, he said.

DIFFERENTIATION IS KEY, BUT GETTING HARDER TO DO. Ten years ago when craft distilleries were just starting to pop up, 22 states did not have any craft distilleries, 16 had one, and only about three or four states had more than five. Now the landscape is vastly different. Every state has at least two craft distilleries. Washington state still has the most at 84, followed by California at 79 and New York at 77.

As a result, it's becoming increasingly difficult for a craft distillery to differentiate itself. "I do believe that differentiation is the key in this market," he said. The increasing number of distillers in each state is forcing craft distillers to get more creative since being "The First Craft Distillery in [your state here]" is no longer an option.

In fact, the number of new entrants is "starting to slow down a little bit," he said. Though, he believes there is "still tremendous room to grow," particularly thanks to the increased demand from millennials. But even that growth is slowing down. Moving forward, Michael predicts supplier consolidation as the market tries to absorb new entrants.

Just how big can craft get? Like many other industry experts, Michael said he sees no ceiling yet on how much market share craft spirits can obtain.

TOP CRAFT SPIRITS TOURIST SPOTS

Speaking of craft distilleries, a big part of the craft movement is connecting with consumers at the distillery or brewery - giving them samples and a peak behind the curtain. To take a closer look at craft tourism and the top destinations, ADI partnered with Travelocity to develop the Craft Spirits Tourism Index.

Travelocity and ADI determined the top 10 large metro areas (population over 1 million) for craft spirits tourism as well as the top ten small metro areas (population under 1 million), using the number of craft distilleries in the area, award-winning spirits, distilling state laws, as well as lodging prices and accessibility to the area.

Yesterday the Florida House voted to knock down the so-called "liquor wall" by passing a bill that would allow grocery stores, big box retailers and others to sell spirits in the same space as other products in a tight 58-57 vote, per News-Press. You may recall, the bill passed through the Senate last month, now it's headed to the governor's desk.

Under current law, spirits must be sold separately in a side store, hence the name "liquor wall." The state has made several attempts in recent years to push legislation forward to allow spirits to be sold alongside other products, and this is the closest it's gotten to pass.

Proponents of the bill, including Wal-mart, Target and Distilled Spirits Council (DSC), say the bill helps bring Florida into the current decade. On the other side, small liquor store owners are concerned they'll lose out to the retail giants if the bill is signed.

We'll have more once Governor Rick Scott decides to veto or sign the bill.

WSD BRIEFS:

VINA ARESTI SEEKS TO "REINVIGORATE" BRAND IN US MARKET. Chilean wine company Vina Aresti recently launched a comprehensive marketing plan including public relations, advertising, distributor programming and a new importer partnership with Vinamericas, per a release. The goal is to enhance brand awareness, expand distribution and support current customers at retail and on-premise in the US. "With this new strategic initiative, including the appointment of Vinamericas as our importer, we seek to reinvigorate Aresti in the US market," says ceo Matias Rivera. Vina Aresti currently exports seven wines to the US under Special Release Reserva (srp $15), Trisquel (srp $22) and Codigo de Familia (srp $100).

LAST CALL FOR EARLY BIRDS. We're hosting our inaugural Distributor Productivity Summit in early August with Wine & Spirits Wholesalers of America. As the name implies, this conference is not about ceos and marketing people talking about pie-in-the-sky concepts. It's about the nuts and bolts of what goes on in the back of the house to get the wine and spirits to the retailer most efficiently and effectively. We look forward to sharing a breakfast taco with you at the event. Early bird pricing ends April 30, so be sure to sign up today.

"You can't wait for inspiration. You have to go after it with a club." -- Jack London

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